Annual Property Growth Rate (% p.a.)
There are two methods you can use to estimate your property growth rate:
1) Use the historical growth rate of the suburb (See below)
2) Estimate the price of your property when you sell it at the end of your investment period and use the calculator below to calculate the growth rate.
1) Use the historical growth rate of the suburb
To estimate the future growth rate using historical average rates, you need to adjust the rate based on your view on how different the property will perform in the future compared to the past. A conservative investor might adjust the a growth rate below the historical average than someone who has a more optimistic view of the same property who might have a growth rate higher than the historical average.
If you don't know where to find historical growth rate averages we have a number of sources for you below:
If you want to access to more detailed information on historical growth rates there are plenty of paid resources that are available as well:
1) Residex Click Here
2) Australian Property Monitors Postcode Report Click Here
3) My Land VIC (VIC Investments only) Click Here
Worked Example 1:
A property investor is interested in purchasing a unit in Randwick, New South Wales. To get an estimate of the property growth rate, the investor uses free information sources. Using the website InvestSMART, the investor inputs Randwick in the search box and receives a table with some price growth information. The investor uses the 36 month price growth of 12% and divides by 3 to get an annual property growth rate of 4%. This investor believes that Randwick will perform better in the future as growth rates have not been high recently and therefore decides to add an extra 1% as a round estimate of improved performance. Therefore, the investor has decided to use 5% as his property value growth assumption.
Worked Example 2
A property investor in Victoria wants to buy a house in Byford, Western Australia. She decides to used a combination of free sources of information and will then decide on a growth rate she is comfortable with. Firstly, she uses the information available from the Real Estate Institute of WA by clicking the link above. She uses the 10 year average growth rate of 11.6% per annum. She then compares this to the research that was done by RpData which she access through the link above to sense check the number. She calculates the average of the 5 years of growth which comes to 11.88% which seems similar to the other source. This investor believes that the resources market will slow down over the next decade and therefore does not believe that this level of growth is sustainable and therefore lowers her expectation of growth rate by around 4 percent. Based on her analysis, she decides to use a growth rate of 7.6% (11.6% less 4%).
2) Estimate the price of your property when you sell it at the end of your investment period.
This method calculates the growth rate based on how much you think you can sell the property at the end of your investment. After you complete the calculation you should sense check whether that number is reasonable. A common rule of thumb is that property prices generally double in 10 years.
Worked Example 3
A property investor bought his property for $450,000. He believes that the property will sell for $1,000,000 at the end of this investment horizon of 15 years. After inputting the values, the calculator returns a growth rate of 5.47%. After looking at this rate he believes that this may be a little too conservative and therefore raises the assumed growth rate to 6.00%.